Margin Requirements for Uncleared Swaps for Swap Dealers and Major Swap Participants, 23842-23847 [2018-10995]
Download as PDF
<![CDATA[
23842
Federal Register / Vol. 83, No. 100 / Wednesday, May 23, 2018 / Proposed Rules
is current on the rabies vaccine as that
vaccine is required by all 50 states for
dogs and by most states for cats. Finally,
should airlines be permitted to require
passengers to obtain signed statements
from veterinarians regarding the
animal’s behavior. And if so, what
recourse should be available for service
animal users if the veterinarian refuses
to fill out the behavior form.
10. Code-Share Flights
Currently, foreign airlines are only
required to transport service dogs,
including emotional support and
psychiatric service dogs, barring a
conflict with a foreign nation’s legal
requirements. However, a U.S. carrier
that code-shares with a foreign carrier
could legally be held liable for its
foreign codes-share partner’s failure to
transport other service animal species
on code-share flights. While the
Department’s Office of Aviation
Enforcement and Proceedings has not
taken action against U.S. carriers under
these circumstances, the Department
seeks comment on whether the rule
should explicitly state that U.S. carriers
would not be held responsible for its
foreign code-share partner’s refusal to
transport transportation service animals
other than dogs.
daltland on DSKBBV9HB2PROD with PROPOSALS
Regulatory Notices
A. Executive Order 13771, 12866 and
13563 and DOT’s Regulatory Policies
and Procedures
This action has been determined to be
significant under Executive Order
12866, as amended by Executive Order
13563, and the Department of
Transportation’s Regulatory Policies and
Procedures. It has been reviewed by the
Office of Management and Budget under
that Order. Executive Orders 12866
(Regulatory Planning and Review) and
13563 (Improving Regulation and
Regulatory Review) require agencies to
regulate in the ‘‘most cost-effective
manner,’’ to make a ‘‘reasoned
determination that the benefits of the
intended regulation justify its costs,’’
and to develop regulations that ‘‘impose
the least burden on society.’’
Additionally, Executive Orders 12866
and 13563 require agencies to provide a
meaningful opportunity for public
participation. Accordingly, we have
asked commenters to answer a variety of
questions to elicit practical information
about alternative approaches and
relevant technical data. These
comments will help the Department
evaluate whether a proposed
rulemaking is needed and appropriate.
This action is not subject to the
requirements of E.O. 13771 (82 FR 9339,
VerDate Sep<11>2014
16:37 May 22, 2018
Jkt 244001
February 3, 2017) because it is an
advance notice of proposed rulemaking.
does not propose any new information
collection burdens.
B. Executive Order 13132 (Federalism)
This ANPRM has been analyzed in
accordance with the principles and
criteria contained in Executive Order
13132 (Federalism). This document
does not propose any regulation that (1)
has substantial direct effects on the
States, the relationship between the
national government and the States, or
the distribution of power and
responsibilities among the various
levels of government, (2) imposes
substantial direct compliance costs on
State and local governments, or (3)
preempts State law. States are already
preempted from regulating in this area
by the Airline Deregulation Act, 49
U.S.C. 41713. Therefore, the
consultation and funding requirements
of Executive Order 13132 do not apply.
F. Unfunded Mandates Reform Act
C. Executive Order 13084
This ANPRM has been analyzed in
accordance with the principles and
criteria contained in Executive Order
13084 (Consultation and Coordination
with Indian Tribal Governments).
Because none of the topics on which we
are seeking comment would
significantly or uniquely affect the
communities of the Indian tribal
governments or impose substantial
direct compliance costs on them, the
funding and consultation requirements
of Executive Order 13084 do not apply.
D. Regulatory Flexibility Act
The Regulatory Flexibility Act (5
U.S.C. 601 et seq.) requires an agency to
review regulations to assess their impact
on small entities unless the agency
determines that a rule is not expected to
have a significant economic impact on
a substantial number of small entities. A
direct air carrier or foreign air carrier is
a small business if it provides air
transportation only with small aircraft
(i.e., aircraft with up to 60 seats/18,000pound payload capacity). See 14 CFR
399.73. If the Department proposes to
adopt the regulatory initiative discussed
in this ANPRM, it is possible that it may
have some impact on some small
entities but we do not believe that it
would have a significant economic
impact on a substantial number of small
entities. We invite comment to facilitate
our assessment of the potential impact
of these initiatives on small entities.
E. Paperwork Reduction Act
Under the Paperwork Reduction Act
(44 U.S.C. 3501 et seq.), no person is
required to respond to a collection of
information unless it displays a valid
OMB control number. This ANPRM
PO 00000
Frm 00016
Fmt 4702
Sfmt 4702
The Department has determined that
the requirements of Title II of the
Unfunded Mandates Reform Act of 1995
do not apply to this document.
G. National Environmental Policy Act
The Department has analyzed the
environmental impacts of this ANPRM
pursuant to the National Environmental
Policy Act of 1969 (NEPA) (42 U.S.C.
4321 et seq.) and has determined that it
is categorically excluded pursuant to
DOT Order 5610.1C, Procedures for
Considering Environmental Impacts (44
FR 56420, Oct. 1, 1979). Categorical
exclusions are actions identified in an
agency’s NEPA implementing
procedures that do not normally have a
significant impact on the environment
and therefore do not require either an
environmental assessment (EA) or
environmental impact statement (EIS).
See 40 CFR 1508.4. In analyzing the
applicability of a categorical exclusion,
the agency must also consider whether
extraordinary circumstances are present
that would warrant the preparation of
an EA or EIS. Id. Paragraph 3.c.6.i of
DOT Order 5610.1C categorically
excludes ‘‘[a]ctions relating to consumer
protection, including regulations.’’ The
purpose of this rulemaking is to seek
public comment on the Department’s
service animal regulations. The
Department does not anticipate any
environmental impacts, and there are no
extraordinary circumstances present in
connection with this rulemaking.
Issued this 9th day of May, 2018, in
Washington, DC under authority delegated in
49 CFR Part 1.27(n).
James C. Owens,
Deputy General Counsel.
[FR Doc. 2018–10815 Filed 5–22–18; 8:45 am]
BILLING CODE 4910–9X–P
COMMODITY FUTURES TRADING
COMMISSION
17 CFR Part 23
RIN 3038–AE71
Margin Requirements for Uncleared
Swaps for Swap Dealers and Major
Swap Participants
Commodity Futures Trading
Commission.
ACTION: Proposed rule.
AGENCY:
The Commodity Futures
Trading Commission (‘‘Commission’’ or
‘‘CFTC’’) is seeking comment on
SUMMARY:
E:\FR\FM\23MYP1.SGM
23MYP1
daltland on DSKBBV9HB2PROD with PROPOSALS
Federal Register / Vol. 83, No. 100 / Wednesday, May 23, 2018 / Proposed Rules
proposed amendments to the margin
requirements for uncleared swaps for
swap dealers (‘‘SD’’) and major swap
participants (‘‘MSP’’) for which there is
no prudential regulator (‘‘CFTC Margin
Rule’’). The Commission is proposing
these amendments in light of the rules
recently adopted by the Board of
Governors of the Federal Reserve
System (‘‘Board’’), the Federal Deposit
Insurance Corporation (‘‘FDIC’’), and the
Office of the Comptroller of the
Currency (‘‘OCC’’) (collectively, the
‘‘QFC Rules’’) that impose restrictions
on certain uncleared swaps and
uncleared security-based swaps and
other financial contracts. Specifically,
the Commission proposes to amend the
definition of ‘‘eligible master netting
agreement’’ in the CFTC Margin Rule to
ensure that master netting agreements of
firms subject to the CFTC Margin Rule
are not excluded from the definition of
‘‘eligible master netting agreement’’
based solely on such agreements’
compliance with the QFC Rules. The
Commission also proposes that any
legacy uncleared swap (i.e., an
uncleared swap entered into before the
applicable compliance date of the CFTC
Margin Rule) that is not now subject to
the margin requirements of the CFTC
Margin Rule would not become so
subject if it is amended solely to comply
with the QFC Rules. These proposed
amendments are consistent with
proposed amendments that the Board,
FDIC, OCC, the Farm Credit
Administration (‘‘FCA’’), and the
Federal Housing Finance Agency
(‘‘FHFA’’ and, together with the Board,
FDIC, OCC, and FCA, the ‘‘Prudential
Regulators’’), jointly published in the
Federal Register on February 21, 2018.
DATES: Comments must be received on
or before July 23, 2018.
ADDRESSES: You may submit comments,
identified by RIN 3038–AE71, by any of
the following methods:
• CFTC Comments Portal: https://
comments.cftc.gov. Select the ‘‘Submit
Comments’’ link for this rulemaking and
follow the instructions on the Public
Comment Form.
• Mail: Send to Christopher
Kirkpatrick, Secretary of the
Commission, Commodity Futures
Trading Commission, Three Lafayette
Center, 1155 21st Street NW,
Washington, DC 20581.
• Hand Delivery/Courier: Follow the
same instructions as for Mail, above.
Please submit your comments using
only one of these methods. Submissions
through the CFTC Comments Portal are
encouraged.
All comments must be submitted in
English, or if not, accompanied by an
VerDate Sep<11>2014
16:37 May 22, 2018
Jkt 244001
English translation. Comments will be
posted as received to https://
comments.cftc.gov. You should submit
only information that you wish to make
available publicly. If you wish the
Commission to consider information
that you believe is exempt from
disclosure under the Freedom of
Information Act (‘‘FOIA’’), a petition for
confidential treatment of the exempt
information may be submitted according
to the procedures established in § 145.9
of the Commission’s regulations.1
The Commission reserves the right,
but shall have no obligation, to review,
pre-screen, filter, redact, refuse or
remove any or all of your submission
from https://comments.cftc.gov that it
may deem to be inappropriate for
publication, such as obscene language.
All submissions that have been redacted
or removed that contain comments on
the merits of the rulemaking will be
retained in the public comment file and
will be considered as required under the
Administrative Procedure Act and other
applicable laws, and may be accessible
under the FOIA.
FOR FURTHER INFORMATION CONTACT:
Matthew Kulkin, Director, (202) 418–
5213, mkulkin@cftc.gov; Frank Fisanich,
Chief Counsel, (202) 418–5949,
ffisanich@cftc.gov; Katherine Driscoll,
Associate Chief Counsel, (202) 418–
5544, kdriscoll@cftc.gov; or Jacob
Chachkin, Special Counsel, (202) 418–
5496, jchachkin@cftc.gov, Division of
Swap Dealer and Intermediary
Oversight, Commodity Futures Trading
Commission, Three Lafayette Centre,
1155 21st Street NW, Washington, DC
20581.
SUPPLEMENTARY INFORMATION:
I. Background
A. The Dodd-Frank Act and the CFTC
Margin Rule
On July 21, 2010, President Obama
signed the Wall Street Reform and
Consumer Protection Act (‘‘Dodd-Frank
Act’’).2 Title VII of the Dodd-Frank Act
amended the Commodity Exchange Act
(‘‘CEA’’) 3 to establish a comprehensive
regulatory framework designed to
reduce risk, to increase transparency,
and to promote market integrity within
the financial system by, among other
things: (1) Providing for the registration
and regulation of SDs and MSPs; (2)
imposing clearing and trade execution
requirements on standardized derivative
products; (3) creating recordkeeping and
1 17 CFR 145.9. Commission regulations referred
to herein are found at 17 CFR chapter I.
2 Dodd-Frank Wall Street Reform and Consumer
Protection Act, Public Law 111–203, 124 Stat. 1376
(2010).
3 7 U.S.C. 1 et seq.
PO 00000
Frm 00017
Fmt 4702
Sfmt 4702
23843
real-time reporting regimes; and (4)
enhancing the Commission’s
rulemaking and enforcement authorities
with respect to all registered entities
and intermediaries subject to the
Commission’s oversight.
Section 731 of the Dodd-Frank Act
added a new section 4s to the CEA
setting forth various requirements for
SDs and MSPs. In particular, section
4s(e) of the CEA directs the Commission
to adopt rules establishing minimum
initial and variation margin
requirements on all swaps 4 that are (i)
entered into by an SD or MSP for which
there is no Prudential Regulator 5
(collectively, ‘‘covered swap entities’’ or
‘‘CSEs’’) and (ii) not cleared by a
registered derivatives clearing
organization (‘‘uncleared swaps’’).6 To
offset the greater risk to the SD or MSP 7
and the financial system arising from
the use of uncleared swaps, these
requirements must (i) help ensure the
safety and soundness of the SD or MSP
and (ii) be appropriate for the risk
associated with the uncleared swaps
held as an SD or MSP.8
To this end, the Commission
promulgated the CFTC Margin Rule in
January 2016,9 establishing
requirements for a CSE to collect and
4 For the definition of swap, see section 1a(47) of
the CEA and Commission regulation 1.3. 7 U.S.C.
1a(47) and 17 CFR 1.3. It includes, among other
things, an interest rate swap, commodity swap,
credit default swap, and currency swap.
5 See 7 U.S.C. 6s(e)(1)(B). SDs and MSPs for
which there is a Prudential Regulator must meet the
margin requirements for uncleared swaps
established by the applicable Prudential Regulator.
7 U.S.C. 6s(e)(1)(A). See also 7 U.S.C. 1a(39)
(defining the term ‘‘Prudential Regulator’’ to
include the Board; the OCC; the FDIC; the FCA; and
the FHFA). The definition further specifies the
entities for which these agencies act as Prudential
Regulators. The Prudential Regulators published
final margin requirements in November 2015. See
Margin and Capital Requirements for Covered Swap
Entities, 80 FR 74840 (Nov. 30, 2015) (‘‘Prudential
Margin Rule’’).
6 See 7 U.S.C. 6s(e)(2)(B)(ii). In Commission
regulation 23.151, the Commission further defined
this statutory language to mean all swaps that are
not cleared by a registered derivatives clearing
organization or a derivatives clearing organization
that the Commission has exempted from
registration as provided under the CEA. 17 CFR
23.151.
7 For the definitions of SD and MSP, see section
1a of the CEA and Commission regulation 1.3. 7
U.S.C. 1a and 17 CFR 1.3.
8 7 U.S.C. 6s(e)(3)(A).
9 Margin Requirements for Uncleared Swaps for
Swap Dealers and Major Swap Participants, 81 FR
636 (Jan. 6, 2016). The CFTC Margin Rule, which
became effective April 1, 2016, is codified in part
23 of the Commission’s regulations. 17 CFR 23.150–
23.159, 23.161.
E:\FR\FM\23MYP1.SGM
23MYP1
23844
Federal Register / Vol. 83, No. 100 / Wednesday, May 23, 2018 / Proposed Rules
daltland on DSKBBV9HB2PROD with PROPOSALS
post initial 10 and variation margin 11 for
uncleared swaps, which requirements
vary based on the type of counterparty
to such swaps.12 These requirements
generally apply only to uncleared swaps
entered into on or after the compliance
date applicable to a particular CSE and
its counterparty (‘‘covered swap’’).13 An
uncleared swap entered into prior to a
CSE’s applicable compliance date for a
particular counterparty (‘‘legacy swap’’)
is generally not subject to the margin
requirements in the CFTC Margin
Rule.14
To the extent that more than one
uncleared swap is executed between a
CSE and its covered counterparty, the
CFTC Margin Rule permits the netting
of required margin amounts of each
swap under certain circumstances.15 In
particular, the CFTC Margin Rule,
subject to certain limitations, permits a
CSE to calculate initial margin and
variation margin, respectively, on an
aggregate net basis across uncleared
10 Initial margin, as defined in Commission
regulation 23.151 (17 CFR 23.151), is the collateral
(calculated as provided by § 23.154 of the
Commission’s regulations) that is collected or
posted in connection with one or more uncleared
swaps. Initial margin is intended to secure potential
future exposure following default of a counterparty
(i.e., adverse changes in the value of an uncleared
swap that may arise during the period of time when
it is being closed out), while variation margin is
provided from one counterparty to the other in
consideration of changes that have occurred in the
mark-to-market value of the uncleared swap. See
CFTC Margin Rule, 81 FR at 664 and 683.
11 Variation margin, as defined in Commission
regulation 23.151 (17 CFR 23.151), is the collateral
provided by a party to its counterparty to meet the
performance of its obligation under one or more
uncleared swaps between the parties as a result of
a change in the value of such obligations since the
trade was executed or the last time such collateral
was provided.
12 See Commission regulations 23.152 and 23.153,
17 CFR 23.152 and 23.153. For example, the CFTC
Margin Rule does not require a CSE to collect
margin from, or post margin to, a counterparty that
is neither a swap entity nor a financial end user
(each as defined in 17 CFR 23.151). Pursuant to
section 2(e) of the CEA, 7 U.S.C. 2(e), each
counterparty to an uncleared swap must be an
eligible contract participant (‘‘ECP’’), as defined in
section 1a(18) of the CEA, 7 U.S.C. 1a(18).
13 Pursuant to Commission regulation 23.161,
compliance dates for the CFTC Margin Rule are
staggered such that SDs must come into compliance
in a series of phases over four years. The first phase
affected SDs and their counterparties, each with the
largest aggregate outstanding notional amounts of
uncleared swaps and certain other financial
products. These SDs began complying with both the
initial and variation margin requirements of the
CFTC Margin Rule on September 1, 2016. The
second phase began March 1, 2017, and required
SDs to comply with the variation margin
requirements of Commission regulation 23.153 with
all relevant counterparties not covered in the first
phase. See 17 CFR 23.161.
14 See CFTC Margin Rule, 81 FR at 651 and
Commission regulation 23.161. 17 CFR 23.161.
15 See CFTC Margin Rule, 81 FR at 651 and
Commission regulations 23.152(c) and 23.153(d). 17
CFR 23.152(c) and 23.153(d).
VerDate Sep<11>2014
16:37 May 22, 2018
Jkt 244001
swaps that are executed under the same
eligible master netting agreement
(‘‘EMNA’’).16 Moreover, the CFTC
Margin Rule permits swap
counterparties to identify one or more
separate netting portfolios (i.e., a
specified group of uncleared swaps the
margin obligations of which will be
netted only against each other) under
the same EMNA, including having
separate netting portfolios for covered
swaps and legacy swaps.17 A netting
portfolio that contains only legacy
swaps is not subject to the initial and
variation margin requirements set out in
the CFTC Margin Rule.18 However, if a
netting portfolio contains any covered
swaps, the entire netting portfolio
(including all legacy swaps) is subject to
such requirements.19
A legacy swap may lose its legacy
treatment under the CFTC Margin Rule,
causing it to become a covered swap
and causing any netting portfolio in
which it is included to be subject to the
requirements of the CFTC Margin Rule.
For reasons discussed in the CFTC
Margin Rule, the Commission elected
not to extend the meaning of legacy
swaps to include (1) legacy swaps that
are amended in a material or
nonmaterial manner; (2) novations of
legacy swaps; and (3) new swaps that
result from portfolio compression of
legacy swaps.20 Therefore, and as
relevant here, a legacy swap that is
amended after the applicable
compliance date may become a covered
swap subject to the initial and variation
margin requirements in the CFTC
Margin Rule, and netting portfolios that
were intended to contain only legacy
swaps and, thus, not be subject to the
CFTC Margin Rule may become so
subject.
B. The QFC Rules
In late 2017, as part of the broader
regulatory reform effort following the
financial crisis to promote U.S. financial
16 Id. The term EMNA is defined in Commission
regulation 23.151. 17 CFR 23.151. Generally, an
EMNA creates a single legal obligation for all
individual transactions covered by the agreement
upon an event of default following certain specified
permitted stays. For example, an International
Swaps and Derivatives Association (‘‘ISDA’’) form
Master Agreement may be an EMNA, if it meets the
specified requirements in the EMNA definition.
17 See CFTC Margin Rule, 81 FR at 651 and
Commission regulations 23.152(c)(2)(ii) and
23.153(d)(2)(ii). 17 CFR 23.152(c)(2)(ii) and
23.153(d)(2)(ii).
18 Id.
19 Id.
20 See CFTC Margin Rule, 81 FR at 675. The
Commission notes that certain limited relief has
been given from this standard. See CFTC Staff
Letter No. 17–52 (Oct. 27. 2017), available at https://
www.cftc.gov/ucm/groups/public/@lrlettergeneral/
documents/letter/17-52.pdf.
PO 00000
Frm 00018
Fmt 4702
Sfmt 4702
stability and increase the resolvability
and resiliency of U.S. global
systemically important banking
institutions (‘‘U.S. GSIBs’’) 21 and the
U.S. operations of foreign global
systemically important banking
institutions (together with U.S. GSIBS,
‘‘GSIBs’’), the Board, FDIC, and OCC
adopted the QFC Rules. The QFC Rules
establish restrictions on and
requirements for uncleared qualified
financial contracts 22 (collectively,
‘‘Covered QFCs’’) of GSIBs, the
subsidiaries of U.S. GSIBs, and certain
other very large OCC-supervised
national banks and Federal savings
associations (collectively, ‘‘Covered
QFC Entities’’).23 They are designed to
help ensure that a failed company’s
passage through a resolution
proceeding—such as bankruptcy or the
special resolution process created by the
Dodd-Frank Act—would be more
orderly, thereby helping to mitigate
destabilizing effects on the rest of the
financial system.24 To help achieve this
goal, the QFC Rules respond in two
ways.25
First, the QFC Rules generally require
the Covered QFCs of Covered QFC
Entities to contain contractual
provisions explicitly providing that any
default rights or restrictions on the
transfer of the Covered QFC are limited
to the same extent as they would be
21 See 12 CFR 217.402 (defining global
systemically important banking institution).
22 Qualified financial contract (‘‘QFC’’) is defined
in section 210(c)(8)(D) of the Dodd-Frank Act to
mean any securities contract, commodity contract,
forward contract, repurchase agreement, swap
agreement, and any similar agreement that the FDIC
determines by regulation, resolution, or order to be
a qualified financial contract. 12 U.S.C.
5390(c)(8)(D).
23 See, e.g., 12 CFR 252.82(c) (defining Covered
QFC). See also 82 FR 42882 (Sep. 12, 2017) (for the
Board’s QFC Rule). See also 82 FR 50228 (Oct. 30,
2017) (for FDIC’s QFC Rule). See also 82 FR 56630
(Nov. 29, 2017) (for the OCC’s QFC Rule). The
effective date of the Board’s QFC Rule is November
13, 2017, and the effective date for the OCC’s QFC
Rule and the substance of the FDIC’s QFC Rule is
January 1, 2018. The QFC Rules include a phasedin conformance period for a Covered QFC Entity,
beginning on January 1, 2019 and ending on
January 1, 2020, that varies depending upon the
counterparty type of the Covered QFC Entity. See,
e.g., 12 CFR 252.82(f).
24 See, e.g., Board’s QFC Rule at 42883. In
particular, the QFC Rules seek to facilitate the
orderly resolution of a failed GSIB by limiting the
ability of the firm’s Covered QFC counterparties to
terminate such contracts immediately upon entry of
the GSIB or one of its affiliates into resolution.
Given the large volume of QFCs to which covered
entities are a party, the exercise of default rights en
masse as a result of the failure or significant distress
of a covered entity could lead to failure and a
disorderly resolution if the failed firm were forced
to sell off assets, which could spread contagion by
increasing volatility and lowering the value of
similar assets held by other firms, or to withdraw
liquidity that it had provided to other firms.
25 Id.
E:\FR\FM\23MYP1.SGM
23MYP1
Federal Register / Vol. 83, No. 100 / Wednesday, May 23, 2018 / Proposed Rules
pursuant to the Federal Deposit
Insurance Act (‘‘FDI Act’’) 26 and Title II
of the Dodd-Frank Act, thereby reducing
the risk that those regimes would be
challenged by a court in a foreign
jurisdiction.27
Second, the QFC Rules generally
prohibit Covered QFCs from allowing
counterparties to Covered QFC Entities
to exercise default rights related,
directly or indirectly, to the entry into
resolution of an affiliate of the Covered
QFC Entity (‘‘cross-default rights’’).28
This is to ensure that counterparties of
solvent affiliates of a failed entity
cannot terminate their contracts with
the solvent affiliate based solely on that
failure.29
Covered QFC Entities are required to
enter into amendments to certain preexisting Covered QFCs to explicitly
provide for these requirements and to
ensure that Covered QFCs entered into
after the applicable compliance date for
the rule explicitly provide for the
same.30
II. Proposed Changes to the CFTC
Margin Rule (‘‘Proposal’’)
A. Proposed Amendment to the
Definition of EMNA in Commission
Regulation 23.151
As noted above, the current definition
of EMNA in Commission regulation
23.151 allows for certain specified
permissible stays of default rights of the
CSE. Specifically, consistent with the
QFC Rules, the current definition
provides that such rights may be stayed
pursuant to a special resolution regime
such as Title II of the Dodd-Frank Act,
the FDI Act, and substantially similar
foreign resolution regimes.31 However,
the current EMNA definition does not
explicitly recognize certain restrictions
on the exercise of a CSE’s cross-default
26 12
U.S.C. 1811 et seq.
e.g., Board’s QFC Rule at 42883 and 42890
and 12 CFR 252.83(b).
28 See, e.g., Board’s QFC Rule at 42883 and 12
CFR 252.84(b). Covered QFC Entities are similarly
generally prohibited from entering into Covered
QFCs that would restrict the transfer of a credit
enhancement supporting the Covered QFC from the
Covered QFC Entity’s affiliate to a transferee upon
the entry into resolution of the affiliate. See, e.g.,
Board’s QFC Rule at 42890 and 12 CFR 252.84(b)(2).
29 Id.
30 See, e.g., 12 CFR 252.82(a) and (c). The QFC
Rules require a Covered QFC Entity to conform
Covered QFCs (i) entered into, executed, or to
which it otherwise becomes a party on or after
January 1, 2019 or (ii) entered into, executed, or to
which it otherwise became a party before January
1, 2019, if the Covered QFC Entity or any affiliate
that is a Covered QFC Entity also enters, executes,
or otherwise becomes a party to a new Covered QFC
with the counterparty to the pre-existing Covered
QFC or a consolidated affiliate of the counterparty
on or after January 1, 2019.
31 17 CFR 23.151.
daltland on DSKBBV9HB2PROD with PROPOSALS
27 See,
VerDate Sep<11>2014
16:37 May 22, 2018
Jkt 244001
rights required under the QFC Rules.32
Therefore, a pre-existing EMNA that is
amended in order to become compliant
with the QFC Rules or a new master
netting agreement that conforms to the
QFC Rules will not meet the current
definition of EMNA. A CSE that is a
counterparty under such a master
netting agreement—one that does not
meet the definition of EMNA—would be
required to measure its exposures from
covered swaps on a gross basis, rather
than aggregate net basis, for purposes of
the CFTC Margin Rule.33
The Commission wants to protect
market participants from being
disadvantaged due to their master
netting agreements not meeting the
requirements of an EMNA solely as a
result of such agreements’ compliance
with the QFC Rules. Accordingly, the
Commission proposes to add a new
paragraph (2)(ii) to the definition of
‘‘eligible master netting agreement’’ in
Commission regulation 23.151 and
make other minor related changes to
that definition such that a master
netting agreement may be an EMNA
even though the agreement limits the
right to accelerate, terminate, and closeout on a net basis all transactions under
the agreement and to liquidate or set-off
collateral promptly upon an event of
default of the counterparty to the extent
necessary for the counterparty to
comply with the requirements of part
47, subpart I of part 252, or part 382 of
title 12, as applicable. These
enumerated provisions contain the
relevant requirements that have been
added by the QFC Rules.
B. Proposed Amendment to Commission
Regulation 23.161, Compliance Dates
Covered QFC Entities must conform
to the requirements of the QFC Rules for
Covered QFCs entered into on or after
January 1, 2019 and, in some instances,
Covered QFCs entered into before that
date.34 To do so, a Covered QFC Entity
may need to amend the contractual
provisions of its pre-existing Covered
QFCs.35 Legacy swaps that are so
amended by a Covered QFC Entity and
its counterparty would become covered
swaps under the current CFTC Margin
Rule.36 Therefore, in order not to
disadvantage market participants who
are parties to legacy swaps that are
32 Id.
33 See CFTC Margin Rule, 81 FR at 651 and
Commission regulations 23.152(c) and 23.153(d). 17
CFR 23.152(c) and 23.153(d).
34 See supra, n.30.
35 Id.
36 See supra, n.20. Note, therefore, that such
amendment would affect all parties to the legacy
swap, not only the Covered QFC Entity subject to
the QFC Rules.
PO 00000
Frm 00019
Fmt 4702
Sfmt 4702
23845
required to be amended to comply with
the QFC Rules, the Commission
proposes to amend the CFTC Margin
Rule such that a legacy swap will not be
a covered swap under the CFTC Margin
Rule if it is amended solely to conform
to the QFC Rules. That is, the
Commission proposes to add a new
paragraph (d) to the end of Commission
regulation 23.161, as shown in the
proposed rule text in this document.
This proposed addition is intended to
provide certainty to a CSE and its
counterparties about the treatment of
legacy swaps and any applicable netting
arrangements in light of the QFC Rules.
However, if, in addition to amendments
required to comply with the QFC Rules,
the parties enter into any other
amendments, the amended legacy swap
will be a covered swap in accordance
with the application of the existing
CFTC Margin Rule.
C. Consistent With the Proposed
Amendments to the Prudential Margin
Rule
The amendments to the CFTC Margin
Rule described above are consistent
with proposed amendments to the
Prudential Margin Rule that the
Prudential Regulators jointly published
in the Federal Register on February 21,
2018.37 Proposing amendments to the
CFTC Margin Rule that are consistent
with those proposed by the Prudential
Regulators furthers the Commission’s
efforts to harmonize its margin regime
with the Prudential Regulators’ margin
regime and is responsive to suggestions
received as part of the Commission’s
Project KISS initiative.38
37 Margin and Capital Requirements for Covered
Swap Entities; Proposed Rule, 83 FR 7413 (Feb. 21,
2018).
38 See Project KISS Initiatives, available at https://
comments.cftc.gov/KISS/KissInitiative.aspx. The
Commission received requests to coordinate
revisions to the CFTC Margin Rule with the
Prudential Regulators. See comments from Credit
Suisse (‘‘CS’’), the Financial Services Roundtable
(‘‘FSR’’), ISDA, the Managed Funds Association
(‘‘MFA’’), and SIFMA Global Foreign Exchange
Division (‘‘GFMA’’). GFMA requested that the
Commission coordinate with the Prudential
Regulators on proposing or making any changes to
the CFTC Margin Rule to ensure harmonization and
consistency across the respective rule sets. In
addition, CS, FSR, ISDA, and MFA, as well as
GFMA requested that the Commission make certain
specific changes to the CFTC Margin Rule in
coordination with the Prudential Regulators relating
to, for example, initial margin calculations and
requirements, margin settlement timeframes,
netting product sets, inter-affiliate margin
exemptions, and cross-border margin issues. Project
KISS suggestions are available at https://
comments.cftc.gov/KISS/KissInitiative.aspx.
E:\FR\FM\23MYP1.SGM
23MYP1
23846
Federal Register / Vol. 83, No. 100 / Wednesday, May 23, 2018 / Proposed Rules
III. Related Matters
A. Paperwork Reduction Act
The Paperwork Reduction Act of 1995
(‘‘PRA’’) 39 imposes certain
requirements on Federal agencies,
including the Commission, in
connection with their conducting or
sponsoring any collection of
information, as defined by the PRA. The
Commission may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
unless it displays a currently valid
Office of Management and Budget
control number. This Proposal contains
no requirements subject to the PRA.
daltland on DSKBBV9HB2PROD with PROPOSALS
B. Regulatory Flexibility Act
The Regulatory Flexibility Act
(‘‘RFA’’) requires that agencies consider
whether the regulations they propose
will have a significant economic impact
on a substantial number of small
entities.40 This Proposal only affects
certain SDs and MSPs that are subject to
the QFC Rules and their covered
counterparties, all of which are required
to be ECPs.41 The Commission has
previously determined that SDs, MSPs,
and ECPs are not small entities for
purposes of the RFA.42 Therefore, the
Commission believes that this Proposal
will not have a significant economic
impact on a substantial number of small
entities, as defined in the RFA.
Accordingly, the Chairman, on behalf
of the Commission, hereby certifies
pursuant to 5 U.S.C. 605(b) that this
Proposal will not have a significant
economic impact on a substantial
number of small entities. The
Commission invites comment on the
impact of this Proposal on small
entities.
C. Cost-Benefit Considerations
Section 15(a) of the CEA requires the
Commission to consider the costs and
benefits of its actions before
promulgating a regulation under the
CEA. Section 15(a) further specifies that
the costs and benefits shall be evaluated
in light of the following five broad areas
of market and public concern: (1)
Protection of market participants and
the public; (2) efficiency,
competitiveness, and financial integrity
of futures markets; (3) price discovery;
(4) sound risk management practices;
and (5) other public interest
considerations. The Commission
39 44
U.S.C. 3501 et seq.
40 5 U.S.C. 601 et seq.
41 See supra, n.12.
42 See Registration of Swap Dealers and Major
Swap Participants, 77 FR 2613, 2620 (Jan. 19, 2012)
(SDs and MSPs) and Opting Out of Segregation, 66
FR 20740, 20743 (April 25, 2001) (ECPs).
VerDate Sep<11>2014
16:37 May 22, 2018
Jkt 244001
considers the costs and benefits
resulting from its discretionary
determinations with respect to the
section 15(a) considerations.
This Proposal prevents certain CSEs
and their counterparties from being
disadvantaged because their master
netting agreements do not satisfy the
definition of an EMNA, solely because
such agreements’ comply with the QFC
Rules or because such agreements
would have to be amended to achieve
compliance. It revises the definition of
EMNA such that a master netting
agreement that meets the requirements
of the QFC Rules may be an EMNA and
provides that an amendment to a legacy
swap solely to conform to the QFC
Rules will not cause that swap to be a
covered swap under the CFTC Margin
Rule.
The baseline against which the
benefits and costs associated with this
Proposal is compared is the uncleared
swaps markets as they exist today, with
the QFC Rules in effect.43 With this as
the baseline for this Proposal, the
following are the benefits and costs of
this Proposal.
1. Benefits
As described above, this Proposal will
allow parties whose master netting
agreements satisfy the proposed revised
definition of EMNA to continue to
calculate initial margin and variation
margin, respectively, on an aggregate net
basis across uncleared swaps that are
executed under that EMNA. Otherwise,
a CSE that is a counterparty under a
master netting agreement that complies
with the QFC Rules and, thus, does not
satisfy the current definition of EMNA,
would be required to measure its
exposures from covered swaps on a
gross basis for purposes of the CFTC
Margin Rule. In addition, this Proposal
allows legacy swaps to maintain their
legacy status, notwithstanding that they
are amended to comply with the QFC
Rules. Otherwise, such swaps would
become covered swaps subject to initial
and variation margin requirements
under the CFTC Margin Rule. This
Proposal provides certainty to CSEs and
their counterparties about the treatment
of legacy swaps and any applicable
netting arrangements in light of the QFC
Rules.
2. Costs
Because this Proposal (i) will solely
expand the definition of EMNA to
potentially include those master netting
agreements that meet the requirements
43 Although, as described above, the QFC Rules
will be gradually phased in, for purposes of the cost
benefit considerations, we assume that the affected
CSEs are in compliance with the QFC Rules.
PO 00000
Frm 00020
Fmt 4702
Sfmt 4702
of the QFC Rules and allow the
amendment of legacy swaps solely to
conform to the QFC Rules without
causing such swaps to become covered
swaps and (ii) does not require market
participants to take any action to benefit
from these changes, the Commission
believes that this Proposal will not
impose any additional costs on market
participants.
3. Section 15(a) Considerations
In light of the foregoing, the CFTC has
evaluated the costs and benefits of this
Proposal pursuant to the five
considerations identified in section
15(a) of the CEA as follows:
(a) Protection of Market Participants and
the Public
As noted above, this Proposal will
protect market participants by allowing
them to comply with the QFC Rules
without being disadvantaged under the
CFTC Margin Rule. This Proposal will
allow market participants to hedge
more, because without this Proposal,
posting gross margin would be more
costly to transact and thus likely reduce
the amount of hedging for market
participants.
(b) Efficiency, Competitiveness, and
Financial Integrity of Markets
This Proposal will make the
uncleared swap markets more efficient
by not requiring the payment of gross
margin under EMNAs that are amended
pursuant to the QFC Rules. Absent this
Proposal, market participants that are
required to amend their EMNAs to
comply with the QFC Rules and,
thereafter, required to measure their
exposure on a gross basis and to post
margin on their legacy swaps, would be
placed at a competitive disadvantage as
compared to those market participants
that are not so required to amend their
EMNAs. Therefore, this Proposal may
increase the competitiveness of the
uncleared swaps markets.
(c) Price Discovery
This Proposal prevents the payment
of gross margin, which would result in
additional costs to swaps transactions.
This Proposal could potentially reduce
the cost to transact these swaps, and
thus might lead to more trading, which
could potentially improve liquidity and
benefit price discovery.
(d) Sound Risk Management
This Proposal prevents the payment
of gross margin, which does not reflect
true economic counterparty credit risk
for swap portfolios transacted with
counterparties. Therefore, this Proposal
supports sound risk management.
E:\FR\FM\23MYP1.SGM
23MYP1
Federal Register / Vol. 83, No. 100 / Wednesday, May 23, 2018 / Proposed Rules
(e) Other Public Interest Considerations
The Commission has not identified an
impact on other public interest
considerations as a result of this
Proposal.
daltland on DSKBBV9HB2PROD with PROPOSALS
4. Request for Comments on CostBenefit Considerations
The Commission invites public
comment on its cost-benefit
considerations, including the section
15(a) factors described above.
Commenters are also invited to submit
any data or other information that they
may have quantifying or qualifying the
costs and benefits of the proposed
amendments with their comment letters.
In particular, the Commission seeks
specific comment on the following:
(a) Has the Commission accurately
identified the benefits of this Proposal?
Are there other benefits to the
Commission, market participants, and/
or the public that may result from the
adoption of this Proposal that the
Commission should consider? Please
provide specific examples and
explanations of any such benefits.
(b) Has the Commission accurately
identified the costs of this Proposal? Are
there additional costs to the
Commission, market participants, and/
or the public that may result from the
adoption of this Proposal that the
Commission should consider? Please
provide specific examples and
explanations of any such costs.
(c) Does this Proposal impact the
section 15(a) factors in any way that is
not described above? Please provide
specific examples and explanations of
any such impact.
D. Antitrust Laws
Section 15(b) of the CEA requires the
Commission to take into consideration
the public interest to be protected by the
antitrust laws and endeavor to take the
least anticompetitive means of
achieving the purposes of the CEA, in
issuing any order or adopting any
Commission rule or regulation
(including any exemption under section
4(c) or 4c(b) of the CEA), or in requiring
or approving any bylaw, rule, or
regulation of a contract market or
registered futures association
established pursuant to section 17 of the
CEA.44
The Commission believes that the
public interest to be protected by the
antitrust laws is generally to protect
competition. The Commission requests
comment on whether this Proposal
implicates any other specific public
interest to be protected by the antitrust
laws.
44 7
U.S.C. 19(b).
VerDate Sep<11>2014
16:37 May 22, 2018
Jkt 244001
The Commission has considered this
Proposal to determine whether it is
anticompetitive and has preliminarily
identified no anticompetitive effects.
The Commission requests comment on
whether this Proposal is anticompetitive
and, if it is, what the anticompetitive
effects are.
Because the Commission has
preliminarily determined that this
Proposal is not anticompetitive and has
no anticompetitive effects, the
Commission has not identified any less
anticompetitive means of achieving the
purposes of the CEA. The Commission
requests comment on whether there are
less anticompetitive means of achieving
the relevant purposes of the CEA that
would otherwise be served by adopting
this Proposal.
List of Subjects in 17 CFR Part 23
Capital and margin requirements,
Major swap participants, Swap dealers,
Swaps.
For the reasons stated in the
preamble, the Commodity Futures
Trading Commission proposes to amend
17 CFR part 23 as follows:
PART 23—SWAP DEALERS AND
MAJOR SWAP PARTICIPANTS
1. The authority citation for part 23
continues to read as follows:
■
Authority: 7 U.S.C. 1a, 2, 6, 6a, 6b, 6b–
1,6c, 6p, 6r, 6s, 6t, 9, 9a, 12, 12a, 13b, 13c,
16a, 18, 19, 21.
Section 23.160 also issued under 7 U.S.C.
2(i); Sec. 721(b), Pub. L. 111–203, 124 Stat.
1641 (2010).
2. In § 23.151, revise paragraph (2) of
the definition of Eligible master netting
agreement to read as follows:
■
§ 23.151 Definitions applicable to margin
requirements.
*
*
*
*
*
Eligible master netting agreement
* * *
(2) The agreement provides the
covered swap entity the right to
accelerate, terminate, and close-out on a
net basis all transactions under the
agreement and to liquidate or set-off
collateral promptly upon an event of
default, including upon an event of
receivership, conservatorship,
insolvency, liquidation, or similar
proceeding, of the counterparty,
provided that, in any such case:
(i) Any exercise of rights under the
agreement will not be stayed or avoided
under applicable law in the relevant
jurisdictions, other than:
(A) In receivership, conservatorship,
or resolution under the Federal Deposit
Insurance Act (12 U.S.C. 1811 et seq.),
Title II of the Dodd-Frank Wall Street
PO 00000
Frm 00021
Fmt 4702
Sfmt 9990
23847
Reform and Consumer Protection Act
(12 U.S.C. 5381 et seq.), the Federal
Housing Enterprises Financial Safety
and Soundness Act of 1992, as amended
(12 U.S.C. 4617), or the Farm Credit Act
of 1971, as amended (12 U.S.C. 2183
and 2279cc), or laws of foreign
jurisdictions that are substantially
similar to the U.S. laws referenced in
this paragraph (2)(i)(A) in order to
facilitate the orderly resolution of the
defaulting counterparty; or
(B) Where the agreement is subject by
its terms to, or incorporates, any of the
laws referenced in paragraph (2)(i)(A) of
this definition; and
(ii) The agreement may limit the right
to accelerate, terminate, and close-out
on a net basis all transactions under the
agreement and to liquidate or set-off
collateral promptly upon an event of
default of the counterparty to the extent
necessary for the counterparty to
comply with the requirements of 12 CFR
part 47; 12 CFR part 252, subpart I; or
12 CFR part 382, as applicable;
*
*
*
*
*
■ 3. In § 23.161, add paragraph (d) to
read as follows:
§ 23.161
Compliance dates.
*
*
*
*
*
(d) For purposes of determining
whether an uncleared swap was entered
into prior to the applicable compliance
date under this section, a covered swap
entity may disregard amendments to the
uncleared swap that were entered into
solely to comply with the requirements
of 12 CFR part 47; 12 CFR part 252,
subpart I; or 12 CFR part 382, as
applicable.
Issued in Washington, DC, on May 18,
2018, by the Commission.
Christopher Kirkpatrick,
Secretary of the Commission.
Note: The following appendix will not
appear in the Code of Federal Regulations.
Appendix to Margin Requirements for
Uncleared Swaps for Swap Dealers and
Major Swap Participants—Commission
Voting Summary
On this matter, Chairman Giancarlo and
Commissioners Quintenz and Behnam voted
in the affirmative. No Commissioner voted in
the negative.
[FR Doc. 2018–10995 Filed 5–22–18; 8:45 am]
BILLING CODE 6351–01–P
E:\FR\FM\23MYP1.SGM
23MYP1
]]>Agencies
[Federal Register Volume 83, Number 100 (Wednesday, May 23, 2018)]
[Proposed Rules]
[Pages 23842-23847]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-10995]
=======================================================================
-----------------------------------------------------------------------
COMMODITY FUTURES TRADING COMMISSION
17 CFR Part 23
RIN 3038-AE71
Margin Requirements for Uncleared Swaps for Swap Dealers and
Major Swap Participants
AGENCY: Commodity Futures Trading Commission.
ACTION: Proposed rule.
-----------------------------------------------------------------------
SUMMARY: The Commodity Futures Trading Commission (``Commission'' or
``CFTC'') is seeking comment on
[[Page 23843]]
proposed amendments to the margin requirements for uncleared swaps for
swap dealers (``SD'') and major swap participants (``MSP'') for which
there is no prudential regulator (``CFTC Margin Rule''). The Commission
is proposing these amendments in light of the rules recently adopted by
the Board of Governors of the Federal Reserve System (``Board''), the
Federal Deposit Insurance Corporation (``FDIC''), and the Office of the
Comptroller of the Currency (``OCC'') (collectively, the ``QFC Rules'')
that impose restrictions on certain uncleared swaps and uncleared
security-based swaps and other financial contracts. Specifically, the
Commission proposes to amend the definition of ``eligible master
netting agreement'' in the CFTC Margin Rule to ensure that master
netting agreements of firms subject to the CFTC Margin Rule are not
excluded from the definition of ``eligible master netting agreement''
based solely on such agreements' compliance with the QFC Rules. The
Commission also proposes that any legacy uncleared swap (i.e., an
uncleared swap entered into before the applicable compliance date of
the CFTC Margin Rule) that is not now subject to the margin
requirements of the CFTC Margin Rule would not become so subject if it
is amended solely to comply with the QFC Rules. These proposed
amendments are consistent with proposed amendments that the Board,
FDIC, OCC, the Farm Credit Administration (``FCA''), and the Federal
Housing Finance Agency (``FHFA'' and, together with the Board, FDIC,
OCC, and FCA, the ``Prudential Regulators''), jointly published in the
Federal Register on February 21, 2018.
DATES: Comments must be received on or before July 23, 2018.
ADDRESSES: You may submit comments, identified by RIN 3038-AE71, by any
of the following methods:
CFTC Comments Portal: https://comments.cftc.gov. Select
the ``Submit Comments'' link for this rulemaking and follow the
instructions on the Public Comment Form.
Mail: Send to Christopher Kirkpatrick, Secretary of the
Commission, Commodity Futures Trading Commission, Three Lafayette
Center, 1155 21st Street NW, Washington, DC 20581.
Hand Delivery/Courier: Follow the same instructions as for
Mail, above. Please submit your comments using only one of these
methods. Submissions through the CFTC Comments Portal are encouraged.
All comments must be submitted in English, or if not, accompanied
by an English translation. Comments will be posted as received to
https://comments.cftc.gov. You should submit only information that you
wish to make available publicly. If you wish the Commission to consider
information that you believe is exempt from disclosure under the
Freedom of Information Act (``FOIA''), a petition for confidential
treatment of the exempt information may be submitted according to the
procedures established in Sec. 145.9 of the Commission's
regulations.\1\
---------------------------------------------------------------------------
\1\ 17 CFR 145.9. Commission regulations referred to herein are
found at 17 CFR chapter I.
---------------------------------------------------------------------------
The Commission reserves the right, but shall have no obligation, to
review, pre-screen, filter, redact, refuse or remove any or all of your
submission from https://comments.cftc.gov that it may deem to be
inappropriate for publication, such as obscene language. All
submissions that have been redacted or removed that contain comments on
the merits of the rulemaking will be retained in the public comment
file and will be considered as required under the Administrative
Procedure Act and other applicable laws, and may be accessible under
the FOIA.
FOR FURTHER INFORMATION CONTACT: Matthew Kulkin, Director, (202) 418-
5213, [email protected]; Frank Fisanich, Chief Counsel, (202) 418-5949,
[email protected]; Katherine Driscoll, Associate Chief Counsel, (202)
418-5544, [email protected]; or Jacob Chachkin, Special Counsel, (202)
418-5496, [email protected], Division of Swap Dealer and Intermediary
Oversight, Commodity Futures Trading Commission, Three Lafayette
Centre, 1155 21st Street NW, Washington, DC 20581.
SUPPLEMENTARY INFORMATION:
I. Background
A. The Dodd-Frank Act and the CFTC Margin Rule
On July 21, 2010, President Obama signed the Wall Street Reform and
Consumer Protection Act (``Dodd-Frank Act'').\2\ Title VII of the Dodd-
Frank Act amended the Commodity Exchange Act (``CEA'') \3\ to establish
a comprehensive regulatory framework designed to reduce risk, to
increase transparency, and to promote market integrity within the
financial system by, among other things: (1) Providing for the
registration and regulation of SDs and MSPs; (2) imposing clearing and
trade execution requirements on standardized derivative products; (3)
creating recordkeeping and real-time reporting regimes; and (4)
enhancing the Commission's rulemaking and enforcement authorities with
respect to all registered entities and intermediaries subject to the
Commission's oversight.
---------------------------------------------------------------------------
\2\ Dodd-Frank Wall Street Reform and Consumer Protection Act,
Public Law 111-203, 124 Stat. 1376 (2010).
\3\ 7 U.S.C. 1 et seq.
---------------------------------------------------------------------------
Section 731 of the Dodd-Frank Act added a new section 4s to the CEA
setting forth various requirements for SDs and MSPs. In particular,
section 4s(e) of the CEA directs the Commission to adopt rules
establishing minimum initial and variation margin requirements on all
swaps \4\ that are (i) entered into by an SD or MSP for which there is
no Prudential Regulator \5\ (collectively, ``covered swap entities'' or
``CSEs'') and (ii) not cleared by a registered derivatives clearing
organization (``uncleared swaps'').\6\ To offset the greater risk to
the SD or MSP \7\ and the financial system arising from the use of
uncleared swaps, these requirements must (i) help ensure the safety and
soundness of the SD or MSP and (ii) be appropriate for the risk
associated with the uncleared swaps held as an SD or MSP.\8\
---------------------------------------------------------------------------
\4\ For the definition of swap, see section 1a(47) of the CEA
and Commission regulation 1.3. 7 U.S.C. 1a(47) and 17 CFR 1.3. It
includes, among other things, an interest rate swap, commodity swap,
credit default swap, and currency swap.
\5\ See 7 U.S.C. 6s(e)(1)(B). SDs and MSPs for which there is a
Prudential Regulator must meet the margin requirements for uncleared
swaps established by the applicable Prudential Regulator. 7 U.S.C.
6s(e)(1)(A). See also 7 U.S.C. 1a(39) (defining the term
``Prudential Regulator'' to include the Board; the OCC; the FDIC;
the FCA; and the FHFA). The definition further specifies the
entities for which these agencies act as Prudential Regulators. The
Prudential Regulators published final margin requirements in
November 2015. See Margin and Capital Requirements for Covered Swap
Entities, 80 FR 74840 (Nov. 30, 2015) (``Prudential Margin Rule'').
\6\ See 7 U.S.C. 6s(e)(2)(B)(ii). In Commission regulation
23.151, the Commission further defined this statutory language to
mean all swaps that are not cleared by a registered derivatives
clearing organization or a derivatives clearing organization that
the Commission has exempted from registration as provided under the
CEA. 17 CFR 23.151.
\7\ For the definitions of SD and MSP, see section 1a of the CEA
and Commission regulation 1.3. 7 U.S.C. 1a and 17 CFR 1.3.
\8\ 7 U.S.C. 6s(e)(3)(A).
---------------------------------------------------------------------------
To this end, the Commission promulgated the CFTC Margin Rule in
January 2016,\9\ establishing requirements for a CSE to collect and
[[Page 23844]]
post initial \10\ and variation margin \11\ for uncleared swaps, which
requirements vary based on the type of counterparty to such swaps.\12\
These requirements generally apply only to uncleared swaps entered into
on or after the compliance date applicable to a particular CSE and its
counterparty (``covered swap'').\13\ An uncleared swap entered into
prior to a CSE's applicable compliance date for a particular
counterparty (``legacy swap'') is generally not subject to the margin
requirements in the CFTC Margin Rule.\14\
---------------------------------------------------------------------------
\9\ Margin Requirements for Uncleared Swaps for Swap Dealers and
Major Swap Participants, 81 FR 636 (Jan. 6, 2016). The CFTC Margin
Rule, which became effective April 1, 2016, is codified in part 23
of the Commission's regulations. 17 CFR 23.150-23.159, 23.161.
\10\ Initial margin, as defined in Commission regulation 23.151
(17 CFR 23.151), is the collateral (calculated as provided by Sec.
23.154 of the Commission's regulations) that is collected or posted
in connection with one or more uncleared swaps. Initial margin is
intended to secure potential future exposure following default of a
counterparty (i.e., adverse changes in the value of an uncleared
swap that may arise during the period of time when it is being
closed out), while variation margin is provided from one
counterparty to the other in consideration of changes that have
occurred in the mark-to-market value of the uncleared swap. See CFTC
Margin Rule, 81 FR at 664 and 683.
\11\ Variation margin, as defined in Commission regulation
23.151 (17 CFR 23.151), is the collateral provided by a party to its
counterparty to meet the performance of its obligation under one or
more uncleared swaps between the parties as a result of a change in
the value of such obligations since the trade was executed or the
last time such collateral was provided.
\12\ See Commission regulations 23.152 and 23.153, 17 CFR 23.152
and 23.153. For example, the CFTC Margin Rule does not require a CSE
to collect margin from, or post margin to, a counterparty that is
neither a swap entity nor a financial end user (each as defined in
17 CFR 23.151). Pursuant to section 2(e) of the CEA, 7 U.S.C. 2(e),
each counterparty to an uncleared swap must be an eligible contract
participant (``ECP''), as defined in section 1a(18) of the CEA, 7
U.S.C. 1a(18).
\13\ Pursuant to Commission regulation 23.161, compliance dates
for the CFTC Margin Rule are staggered such that SDs must come into
compliance in a series of phases over four years. The first phase
affected SDs and their counterparties, each with the largest
aggregate outstanding notional amounts of uncleared swaps and
certain other financial products. These SDs began complying with
both the initial and variation margin requirements of the CFTC
Margin Rule on September 1, 2016. The second phase began March 1,
2017, and required SDs to comply with the variation margin
requirements of Commission regulation 23.153 with all relevant
counterparties not covered in the first phase. See 17 CFR 23.161.
\14\ See CFTC Margin Rule, 81 FR at 651 and Commission
regulation 23.161. 17 CFR 23.161.
---------------------------------------------------------------------------
To the extent that more than one uncleared swap is executed between
a CSE and its covered counterparty, the CFTC Margin Rule permits the
netting of required margin amounts of each swap under certain
circumstances.\15\ In particular, the CFTC Margin Rule, subject to
certain limitations, permits a CSE to calculate initial margin and
variation margin, respectively, on an aggregate net basis across
uncleared swaps that are executed under the same eligible master
netting agreement (``EMNA'').\16\ Moreover, the CFTC Margin Rule
permits swap counterparties to identify one or more separate netting
portfolios (i.e., a specified group of uncleared swaps the margin
obligations of which will be netted only against each other) under the
same EMNA, including having separate netting portfolios for covered
swaps and legacy swaps.\17\ A netting portfolio that contains only
legacy swaps is not subject to the initial and variation margin
requirements set out in the CFTC Margin Rule.\18\ However, if a netting
portfolio contains any covered swaps, the entire netting portfolio
(including all legacy swaps) is subject to such requirements.\19\
---------------------------------------------------------------------------
\15\ See CFTC Margin Rule, 81 FR at 651 and Commission
regulations 23.152(c) and 23.153(d). 17 CFR 23.152(c) and 23.153(d).
\16\ Id. The term EMNA is defined in Commission regulation
23.151. 17 CFR 23.151. Generally, an EMNA creates a single legal
obligation for all individual transactions covered by the agreement
upon an event of default following certain specified permitted
stays. For example, an International Swaps and Derivatives
Association (``ISDA'') form Master Agreement may be an EMNA, if it
meets the specified requirements in the EMNA definition.
\17\ See CFTC Margin Rule, 81 FR at 651 and Commission
regulations 23.152(c)(2)(ii) and 23.153(d)(2)(ii). 17 CFR
23.152(c)(2)(ii) and 23.153(d)(2)(ii).
\18\ Id.
\19\ Id.
---------------------------------------------------------------------------
A legacy swap may lose its legacy treatment under the CFTC Margin
Rule, causing it to become a covered swap and causing any netting
portfolio in which it is included to be subject to the requirements of
the CFTC Margin Rule. For reasons discussed in the CFTC Margin Rule,
the Commission elected not to extend the meaning of legacy swaps to
include (1) legacy swaps that are amended in a material or nonmaterial
manner; (2) novations of legacy swaps; and (3) new swaps that result
from portfolio compression of legacy swaps.\20\ Therefore, and as
relevant here, a legacy swap that is amended after the applicable
compliance date may become a covered swap subject to the initial and
variation margin requirements in the CFTC Margin Rule, and netting
portfolios that were intended to contain only legacy swaps and, thus,
not be subject to the CFTC Margin Rule may become so subject.
---------------------------------------------------------------------------
\20\ See CFTC Margin Rule, 81 FR at 675. The Commission notes
that certain limited relief has been given from this standard. See
CFTC Staff Letter No. 17-52 (Oct. 27. 2017), available at https://www.cftc.gov/ucm/groups/public/@lrlettergeneral/documents/letter/17-52.pdf.
---------------------------------------------------------------------------
B. The QFC Rules
In late 2017, as part of the broader regulatory reform effort
following the financial crisis to promote U.S. financial stability and
increase the resolvability and resiliency of U.S. global systemically
important banking institutions (``U.S. GSIBs'') \21\ and the U.S.
operations of foreign global systemically important banking
institutions (together with U.S. GSIBS, ``GSIBs''), the Board, FDIC,
and OCC adopted the QFC Rules. The QFC Rules establish restrictions on
and requirements for uncleared qualified financial contracts \22\
(collectively, ``Covered QFCs'') of GSIBs, the subsidiaries of U.S.
GSIBs, and certain other very large OCC-supervised national banks and
Federal savings associations (collectively, ``Covered QFC
Entities'').\23\ They are designed to help ensure that a failed
company's passage through a resolution proceeding--such as bankruptcy
or the special resolution process created by the Dodd-Frank Act--would
be more orderly, thereby helping to mitigate destabilizing effects on
the rest of the financial system.\24\ To help achieve this goal, the
QFC Rules respond in two ways.\25\
---------------------------------------------------------------------------
\21\ See 12 CFR 217.402 (defining global systemically important
banking institution).
\22\ Qualified financial contract (``QFC'') is defined in
section 210(c)(8)(D) of the Dodd-Frank Act to mean any securities
contract, commodity contract, forward contract, repurchase
agreement, swap agreement, and any similar agreement that the FDIC
determines by regulation, resolution, or order to be a qualified
financial contract. 12 U.S.C. 5390(c)(8)(D).
\23\ See, e.g., 12 CFR 252.82(c) (defining Covered QFC). See
also 82 FR 42882 (Sep. 12, 2017) (for the Board's QFC Rule). See
also 82 FR 50228 (Oct. 30, 2017) (for FDIC's QFC Rule). See also 82
FR 56630 (Nov. 29, 2017) (for the OCC's QFC Rule). The effective
date of the Board's QFC Rule is November 13, 2017, and the effective
date for the OCC's QFC Rule and the substance of the FDIC's QFC Rule
is January 1, 2018. The QFC Rules include a phased-in conformance
period for a Covered QFC Entity, beginning on January 1, 2019 and
ending on January 1, 2020, that varies depending upon the
counterparty type of the Covered QFC Entity. See, e.g., 12 CFR
252.82(f).
\24\ See, e.g., Board's QFC Rule at 42883. In particular, the
QFC Rules seek to facilitate the orderly resolution of a failed GSIB
by limiting the ability of the firm's Covered QFC counterparties to
terminate such contracts immediately upon entry of the GSIB or one
of its affiliates into resolution. Given the large volume of QFCs to
which covered entities are a party, the exercise of default rights
en masse as a result of the failure or significant distress of a
covered entity could lead to failure and a disorderly resolution if
the failed firm were forced to sell off assets, which could spread
contagion by increasing volatility and lowering the value of similar
assets held by other firms, or to withdraw liquidity that it had
provided to other firms.
\25\ Id.
---------------------------------------------------------------------------
First, the QFC Rules generally require the Covered QFCs of Covered
QFC Entities to contain contractual provisions explicitly providing
that any default rights or restrictions on the transfer of the Covered
QFC are limited to the same extent as they would be
[[Page 23845]]
pursuant to the Federal Deposit Insurance Act (``FDI Act'') \26\ and
Title II of the Dodd-Frank Act, thereby reducing the risk that those
regimes would be challenged by a court in a foreign jurisdiction.\27\
---------------------------------------------------------------------------
\26\ 12 U.S.C. 1811 et seq.
\27\ See, e.g., Board's QFC Rule at 42883 and 42890 and 12 CFR
252.83(b).
---------------------------------------------------------------------------
Second, the QFC Rules generally prohibit Covered QFCs from allowing
counterparties to Covered QFC Entities to exercise default rights
related, directly or indirectly, to the entry into resolution of an
affiliate of the Covered QFC Entity (``cross-default rights'').\28\
This is to ensure that counterparties of solvent affiliates of a failed
entity cannot terminate their contracts with the solvent affiliate
based solely on that failure.\29\
---------------------------------------------------------------------------
\28\ See, e.g., Board's QFC Rule at 42883 and 12 CFR 252.84(b).
Covered QFC Entities are similarly generally prohibited from
entering into Covered QFCs that would restrict the transfer of a
credit enhancement supporting the Covered QFC from the Covered QFC
Entity's affiliate to a transferee upon the entry into resolution of
the affiliate. See, e.g., Board's QFC Rule at 42890 and 12 CFR
252.84(b)(2).
\29\ Id.
---------------------------------------------------------------------------
Covered QFC Entities are required to enter into amendments to
certain pre-existing Covered QFCs to explicitly provide for these
requirements and to ensure that Covered QFCs entered into after the
applicable compliance date for the rule explicitly provide for the
same.\30\
---------------------------------------------------------------------------
\30\ See, e.g., 12 CFR 252.82(a) and (c). The QFC Rules require
a Covered QFC Entity to conform Covered QFCs (i) entered into,
executed, or to which it otherwise becomes a party on or after
January 1, 2019 or (ii) entered into, executed, or to which it
otherwise became a party before January 1, 2019, if the Covered QFC
Entity or any affiliate that is a Covered QFC Entity also enters,
executes, or otherwise becomes a party to a new Covered QFC with the
counterparty to the pre-existing Covered QFC or a consolidated
affiliate of the counterparty on or after January 1, 2019.
---------------------------------------------------------------------------
II. Proposed Changes to the CFTC Margin Rule (``Proposal'')
A. Proposed Amendment to the Definition of EMNA in Commission
Regulation 23.151
As noted above, the current definition of EMNA in Commission
regulation 23.151 allows for certain specified permissible stays of
default rights of the CSE. Specifically, consistent with the QFC Rules,
the current definition provides that such rights may be stayed pursuant
to a special resolution regime such as Title II of the Dodd-Frank Act,
the FDI Act, and substantially similar foreign resolution regimes.\31\
However, the current EMNA definition does not explicitly recognize
certain restrictions on the exercise of a CSE's cross-default rights
required under the QFC Rules.\32\ Therefore, a pre-existing EMNA that
is amended in order to become compliant with the QFC Rules or a new
master netting agreement that conforms to the QFC Rules will not meet
the current definition of EMNA. A CSE that is a counterparty under such
a master netting agreement--one that does not meet the definition of
EMNA--would be required to measure its exposures from covered swaps on
a gross basis, rather than aggregate net basis, for purposes of the
CFTC Margin Rule.\33\
---------------------------------------------------------------------------
\31\ 17 CFR 23.151.
\32\ Id.
\33\ See CFTC Margin Rule, 81 FR at 651 and Commission
regulations 23.152(c) and 23.153(d). 17 CFR 23.152(c) and 23.153(d).
---------------------------------------------------------------------------
The Commission wants to protect market participants from being
disadvantaged due to their master netting agreements not meeting the
requirements of an EMNA solely as a result of such agreements'
compliance with the QFC Rules. Accordingly, the Commission proposes to
add a new paragraph (2)(ii) to the definition of ``eligible master
netting agreement'' in Commission regulation 23.151 and make other
minor related changes to that definition such that a master netting
agreement may be an EMNA even though the agreement limits the right to
accelerate, terminate, and close-out on a net basis all transactions
under the agreement and to liquidate or set-off collateral promptly
upon an event of default of the counterparty to the extent necessary
for the counterparty to comply with the requirements of part 47,
subpart I of part 252, or part 382 of title 12, as applicable. These
enumerated provisions contain the relevant requirements that have been
added by the QFC Rules.
B. Proposed Amendment to Commission Regulation 23.161, Compliance Dates
Covered QFC Entities must conform to the requirements of the QFC
Rules for Covered QFCs entered into on or after January 1, 2019 and, in
some instances, Covered QFCs entered into before that date.\34\ To do
so, a Covered QFC Entity may need to amend the contractual provisions
of its pre-existing Covered QFCs.\35\ Legacy swaps that are so amended
by a Covered QFC Entity and its counterparty would become covered swaps
under the current CFTC Margin Rule.\36\ Therefore, in order not to
disadvantage market participants who are parties to legacy swaps that
are required to be amended to comply with the QFC Rules, the Commission
proposes to amend the CFTC Margin Rule such that a legacy swap will not
be a covered swap under the CFTC Margin Rule if it is amended solely to
conform to the QFC Rules. That is, the Commission proposes to add a new
paragraph (d) to the end of Commission regulation 23.161, as shown in
the proposed rule text in this document.
---------------------------------------------------------------------------
\34\ See supra, n.30.
\35\ Id.
\36\ See supra, n.20. Note, therefore, that such amendment would
affect all parties to the legacy swap, not only the Covered QFC
Entity subject to the QFC Rules.
---------------------------------------------------------------------------
This proposed addition is intended to provide certainty to a CSE
and its counterparties about the treatment of legacy swaps and any
applicable netting arrangements in light of the QFC Rules. However, if,
in addition to amendments required to comply with the QFC Rules, the
parties enter into any other amendments, the amended legacy swap will
be a covered swap in accordance with the application of the existing
CFTC Margin Rule.
C. Consistent With the Proposed Amendments to the Prudential Margin
Rule
The amendments to the CFTC Margin Rule described above are
consistent with proposed amendments to the Prudential Margin Rule that
the Prudential Regulators jointly published in the Federal Register on
February 21, 2018.\37\ Proposing amendments to the CFTC Margin Rule
that are consistent with those proposed by the Prudential Regulators
furthers the Commission's efforts to harmonize its margin regime with
the Prudential Regulators' margin regime and is responsive to
suggestions received as part of the Commission's Project KISS
initiative.\38\
---------------------------------------------------------------------------
\37\ Margin and Capital Requirements for Covered Swap Entities;
Proposed Rule, 83 FR 7413 (Feb. 21, 2018).
\38\ See Project KISS Initiatives, available at https://comments.cftc.gov/KISS/KissInitiative.aspx. The Commission received
requests to coordinate revisions to the CFTC Margin Rule with the
Prudential Regulators. See comments from Credit Suisse (``CS''), the
Financial Services Roundtable (``FSR''), ISDA, the Managed Funds
Association (``MFA''), and SIFMA Global Foreign Exchange Division
(``GFMA''). GFMA requested that the Commission coordinate with the
Prudential Regulators on proposing or making any changes to the CFTC
Margin Rule to ensure harmonization and consistency across the
respective rule sets. In addition, CS, FSR, ISDA, and MFA, as well
as GFMA requested that the Commission make certain specific changes
to the CFTC Margin Rule in coordination with the Prudential
Regulators relating to, for example, initial margin calculations and
requirements, margin settlement timeframes, netting product sets,
inter-affiliate margin exemptions, and cross-border margin issues.
Project KISS suggestions are available at https://comments.cftc.gov/KISS/KissInitiative.aspx.
---------------------------------------------------------------------------
[[Page 23846]]
III. Related Matters
A. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (``PRA'') \39\ imposes certain
requirements on Federal agencies, including the Commission, in
connection with their conducting or sponsoring any collection of
information, as defined by the PRA. The Commission may not conduct or
sponsor, and a person is not required to respond to, a collection of
information unless it displays a currently valid Office of Management
and Budget control number. This Proposal contains no requirements
subject to the PRA.
---------------------------------------------------------------------------
\39\ 44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------
B. Regulatory Flexibility Act
The Regulatory Flexibility Act (``RFA'') requires that agencies
consider whether the regulations they propose will have a significant
economic impact on a substantial number of small entities.\40\ This
Proposal only affects certain SDs and MSPs that are subject to the QFC
Rules and their covered counterparties, all of which are required to be
ECPs.\41\ The Commission has previously determined that SDs, MSPs, and
ECPs are not small entities for purposes of the RFA.\42\ Therefore, the
Commission believes that this Proposal will not have a significant
economic impact on a substantial number of small entities, as defined
in the RFA.
---------------------------------------------------------------------------
\40\ 5 U.S.C. 601 et seq.
\41\ See supra, n.12.
\42\ See Registration of Swap Dealers and Major Swap
Participants, 77 FR 2613, 2620 (Jan. 19, 2012) (SDs and MSPs) and
Opting Out of Segregation, 66 FR 20740, 20743 (April 25, 2001)
(ECPs).
---------------------------------------------------------------------------
Accordingly, the Chairman, on behalf of the Commission, hereby
certifies pursuant to 5 U.S.C. 605(b) that this Proposal will not have
a significant economic impact on a substantial number of small
entities. The Commission invites comment on the impact of this Proposal
on small entities.
C. Cost-Benefit Considerations
Section 15(a) of the CEA requires the Commission to consider the
costs and benefits of its actions before promulgating a regulation
under the CEA. Section 15(a) further specifies that the costs and
benefits shall be evaluated in light of the following five broad areas
of market and public concern: (1) Protection of market participants and
the public; (2) efficiency, competitiveness, and financial integrity of
futures markets; (3) price discovery; (4) sound risk management
practices; and (5) other public interest considerations. The Commission
considers the costs and benefits resulting from its discretionary
determinations with respect to the section 15(a) considerations.
This Proposal prevents certain CSEs and their counterparties from
being disadvantaged because their master netting agreements do not
satisfy the definition of an EMNA, solely because such agreements'
comply with the QFC Rules or because such agreements would have to be
amended to achieve compliance. It revises the definition of EMNA such
that a master netting agreement that meets the requirements of the QFC
Rules may be an EMNA and provides that an amendment to a legacy swap
solely to conform to the QFC Rules will not cause that swap to be a
covered swap under the CFTC Margin Rule.
The baseline against which the benefits and costs associated with
this Proposal is compared is the uncleared swaps markets as they exist
today, with the QFC Rules in effect.\43\ With this as the baseline for
this Proposal, the following are the benefits and costs of this
Proposal.
---------------------------------------------------------------------------
\43\ Although, as described above, the QFC Rules will be
gradually phased in, for purposes of the cost benefit
considerations, we assume that the affected CSEs are in compliance
with the QFC Rules.
---------------------------------------------------------------------------
1. Benefits
As described above, this Proposal will allow parties whose master
netting agreements satisfy the proposed revised definition of EMNA to
continue to calculate initial margin and variation margin,
respectively, on an aggregate net basis across uncleared swaps that are
executed under that EMNA. Otherwise, a CSE that is a counterparty under
a master netting agreement that complies with the QFC Rules and, thus,
does not satisfy the current definition of EMNA, would be required to
measure its exposures from covered swaps on a gross basis for purposes
of the CFTC Margin Rule. In addition, this Proposal allows legacy swaps
to maintain their legacy status, notwithstanding that they are amended
to comply with the QFC Rules. Otherwise, such swaps would become
covered swaps subject to initial and variation margin requirements
under the CFTC Margin Rule. This Proposal provides certainty to CSEs
and their counterparties about the treatment of legacy swaps and any
applicable netting arrangements in light of the QFC Rules.
2. Costs
Because this Proposal (i) will solely expand the definition of EMNA
to potentially include those master netting agreements that meet the
requirements of the QFC Rules and allow the amendment of legacy swaps
solely to conform to the QFC Rules without causing such swaps to become
covered swaps and (ii) does not require market participants to take any
action to benefit from these changes, the Commission believes that this
Proposal will not impose any additional costs on market participants.
3. Section 15(a) Considerations
In light of the foregoing, the CFTC has evaluated the costs and
benefits of this Proposal pursuant to the five considerations
identified in section 15(a) of the CEA as follows:
(a) Protection of Market Participants and the Public
As noted above, this Proposal will protect market participants by
allowing them to comply with the QFC Rules without being disadvantaged
under the CFTC Margin Rule. This Proposal will allow market
participants to hedge more, because without this Proposal, posting
gross margin would be more costly to transact and thus likely reduce
the amount of hedging for market participants.
(b) Efficiency, Competitiveness, and Financial Integrity of Markets
This Proposal will make the uncleared swap markets more efficient
by not requiring the payment of gross margin under EMNAs that are
amended pursuant to the QFC Rules. Absent this Proposal, market
participants that are required to amend their EMNAs to comply with the
QFC Rules and, thereafter, required to measure their exposure on a
gross basis and to post margin on their legacy swaps, would be placed
at a competitive disadvantage as compared to those market participants
that are not so required to amend their EMNAs. Therefore, this Proposal
may increase the competitiveness of the uncleared swaps markets.
(c) Price Discovery
This Proposal prevents the payment of gross margin, which would
result in additional costs to swaps transactions. This Proposal could
potentially reduce the cost to transact these swaps, and thus might
lead to more trading, which could potentially improve liquidity and
benefit price discovery.
(d) Sound Risk Management
This Proposal prevents the payment of gross margin, which does not
reflect true economic counterparty credit risk for swap portfolios
transacted with counterparties. Therefore, this Proposal supports sound
risk management.
[[Page 23847]]
(e) Other Public Interest Considerations
The Commission has not identified an impact on other public
interest considerations as a result of this Proposal.
4. Request for Comments on Cost-Benefit Considerations
The Commission invites public comment on its cost-benefit
considerations, including the section 15(a) factors described above.
Commenters are also invited to submit any data or other information
that they may have quantifying or qualifying the costs and benefits of
the proposed amendments with their comment letters. In particular, the
Commission seeks specific comment on the following:
(a) Has the Commission accurately identified the benefits of this
Proposal? Are there other benefits to the Commission, market
participants, and/or the public that may result from the adoption of
this Proposal that the Commission should consider? Please provide
specific examples and explanations of any such benefits.
(b) Has the Commission accurately identified the costs of this
Proposal? Are there additional costs to the Commission, market
participants, and/or the public that may result from the adoption of
this Proposal that the Commission should consider? Please provide
specific examples and explanations of any such costs.
(c) Does this Proposal impact the section 15(a) factors in any way
that is not described above? Please provide specific examples and
explanations of any such impact.
D. Antitrust Laws
Section 15(b) of the CEA requires the Commission to take into
consideration the public interest to be protected by the antitrust laws
and endeavor to take the least anticompetitive means of achieving the
purposes of the CEA, in issuing any order or adopting any Commission
rule or regulation (including any exemption under section 4(c) or 4c(b)
of the CEA), or in requiring or approving any bylaw, rule, or
regulation of a contract market or registered futures association
established pursuant to section 17 of the CEA.\44\
---------------------------------------------------------------------------
\44\ 7 U.S.C. 19(b).
---------------------------------------------------------------------------
The Commission believes that the public interest to be protected by
the antitrust laws is generally to protect competition. The Commission
requests comment on whether this Proposal implicates any other specific
public interest to be protected by the antitrust laws.
The Commission has considered this Proposal to determine whether it
is anticompetitive and has preliminarily identified no anticompetitive
effects. The Commission requests comment on whether this Proposal is
anticompetitive and, if it is, what the anticompetitive effects are.
Because the Commission has preliminarily determined that this
Proposal is not anticompetitive and has no anticompetitive effects, the
Commission has not identified any less anticompetitive means of
achieving the purposes of the CEA. The Commission requests comment on
whether there are less anticompetitive means of achieving the relevant
purposes of the CEA that would otherwise be served by adopting this
Proposal.
List of Subjects in 17 CFR Part 23
Capital and margin requirements, Major swap participants, Swap
dealers, Swaps.
For the reasons stated in the preamble, the Commodity Futures
Trading Commission proposes to amend 17 CFR part 23 as follows:
PART 23--SWAP DEALERS AND MAJOR SWAP PARTICIPANTS
0
1. The authority citation for part 23 continues to read as follows:
Authority: 7 U.S.C. 1a, 2, 6, 6a, 6b, 6b-1,6c, 6p, 6r, 6s, 6t,
9, 9a, 12, 12a, 13b, 13c, 16a, 18, 19, 21.
Section 23.160 also issued under 7 U.S.C. 2(i); Sec. 721(b),
Pub. L. 111-203, 124 Stat. 1641 (2010).
0
2. In Sec. 23.151, revise paragraph (2) of the definition of Eligible
master netting agreement to read as follows:
Sec. 23.151 Definitions applicable to margin requirements.
* * * * *
Eligible master netting agreement * * *
(2) The agreement provides the covered swap entity the right to
accelerate, terminate, and close-out on a net basis all transactions
under the agreement and to liquidate or set-off collateral promptly
upon an event of default, including upon an event of receivership,
conservatorship, insolvency, liquidation, or similar proceeding, of the
counterparty, provided that, in any such case:
(i) Any exercise of rights under the agreement will not be stayed
or avoided under applicable law in the relevant jurisdictions, other
than:
(A) In receivership, conservatorship, or resolution under the
Federal Deposit Insurance Act (12 U.S.C. 1811 et seq.), Title II of the
Dodd-Frank Wall Street Reform and Consumer Protection Act (12 U.S.C.
5381 et seq.), the Federal Housing Enterprises Financial Safety and
Soundness Act of 1992, as amended (12 U.S.C. 4617), or the Farm Credit
Act of 1971, as amended (12 U.S.C. 2183 and 2279cc), or laws of foreign
jurisdictions that are substantially similar to the U.S. laws
referenced in this paragraph (2)(i)(A) in order to facilitate the
orderly resolution of the defaulting counterparty; or
(B) Where the agreement is subject by its terms to, or
incorporates, any of the laws referenced in paragraph (2)(i)(A) of this
definition; and
(ii) The agreement may limit the right to accelerate, terminate,
and close-out on a net basis all transactions under the agreement and
to liquidate or set-off collateral promptly upon an event of default of
the counterparty to the extent necessary for the counterparty to comply
with the requirements of 12 CFR part 47; 12 CFR part 252, subpart I; or
12 CFR part 382, as applicable;
* * * * *
0
3. In Sec. 23.161, add paragraph (d) to read as follows:
Sec. 23.161 Compliance dates.
* * * * *
(d) For purposes of determining whether an uncleared swap was
entered into prior to the applicable compliance date under this
section, a covered swap entity may disregard amendments to the
uncleared swap that were entered into solely to comply with the
requirements of 12 CFR part 47; 12 CFR part 252, subpart I; or 12 CFR
part 382, as applicable.
Issued in Washington, DC, on May 18, 2018, by the Commission.
Christopher Kirkpatrick,
Secretary of the Commission.
Note: The following appendix will not appear in the Code of
Federal Regulations.
Appendix to Margin Requirements for Uncleared Swaps for Swap Dealers
and Major Swap Participants--Commission Voting Summary
On this matter, Chairman Giancarlo and Commissioners Quintenz
and Behnam voted in the affirmative. No Commissioner voted in the
negative.
[FR Doc. 2018-10995 Filed 5-22-18; 8:45 am]
BILLING CODE 6351-01-P
